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Why these two midcaps are suddenly hot

June 26, 2006 15:29 IST

Investment analyst Ashish Chugh gives his top two picks in the midcap space: Alumeco India Extrusion and Country Club (India) Ltd.

Excerpts from CNBC–TV18's exclusive interview with Ashish Chugh:

What is Alumeco India Extrusion all about?

Alumeco is a Hyderabad based company. This company was earlier called Pennar Profiles Limited. This company is involved in the manufacture of aluminium extruded products, which are mainly used in construction, automobile and the engineering industry.

This company was earlier having problems because of the huge debt in the balance sheet. Last year they negotiated a one-time settlement with lenders, where in they paid about 53% of the outstanding principal. The balance principal along with interest and penal charges has been waived off. This has made the balance sheet of the company almost debt free. The debt has come down from about Rs 45 crore to about Rs 4 crore.

Another big development in Alumeco is that there has been a change in the management control.

This company has been taken over by Alumeco Group of Denmark. Alumeco Group in Denmark mainly operates in Northern Europe and they have a turnover of close to 1 billion Danish Krones.

After the takeover, they infused more capital into the company, and they have also taken preference shares in the company.

The takeover by Alumeco will help Alumeco India to procure its raw material at more competitive prices because of the scales. In future, we may see Alumeco infusing more capital into the company and they may make India a sourcing base because of the cost advantage. So here is a company, which has now been taken over by a multinational, which is a leader in its field in Europe.

It is a good company for investors who believe in catching companies, when the visibility of earnings is not there. So the risk in investment in these companies is high, but the price is very attractive. Prices have dropped by more than 50% over the last one month. At Rs 30, the downside looks limited and it could be a good long-term bet.

Any disclosures on this one? Do you own this stock?

No, I don't own Alumeco India.

Country Club is the other story that you like. Tell us a little bit about the business and what do you expect them to do?

Country Club (India) Ltd is the largest chain of family clubs

in the country. They have clubs located at 20 locations, mainly in the southern and western part of India. This company owns a four star hotel called Amrutha Castle, which is located at Hyderabad. This company has been in an acquisition mode, they have acquired two properties in Mumbai. They had one of their clubs running at one of these properties. This company has also acquired resorts in Sri Lanka, Trichur and Goa.

Besides the resorts, this company has also ventured into wild life and adventure tourism by acquiring a property, which is located close to the Bandipur National Park in Karnataka. With all this acquisitions, the topline and the bottomline of the company will see a substantial jump in years to come.

Country Club (India) Ltd has reported excellent numbers for the period ended March 2006. They have almost doubled their turnover from Rs 34 to Rs 65 crore. The profit has been Rs 13 crore as against a loss of about Rs 3 crore last year. This profit will result in earning per share of around Rs 15. So at Rs 80, the stock is available at a price to earning ratio of just about 5. This is a case where one has got growth coming in the future, along with great value at the current prices.

Any concerns or risk to this one?

Major concern is that the stock trades in the Z group, that is the caution and concern.

We ask because the investor experience with many of these resort companies has not been very good in the past, but you are confident this management is clean and will deliver?

There is a risk associated when one is buying these kind of companies because not much is written or known about the management. If one checks up the past track record, one does not see anything on their past achievements, which puts a question mark on their credibility. The good thing is that the management themselves have been buying the stock from the market.

If one sees the shareholding pattern between March 2005 and March 2006, they have added about 4.5% equity. If one sees the public shareholding, it seems that the relatives are also buying from the market and increasing their shareholding.

Any disclosure to make on Country Club? Do you own this stock?

I have investments in Country Club India.

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